Here’s my take on a couple of biotech stocks…both of which were up nicely today…neither of which are buyable. Check out $AKRO and $ETNB.
This is Dan Fitzpatrick at StockMarketMentor.com. I want to look at a couple of stocks that IBD featured today on their front page, Akero ( NASDAQ: AKRO ), and 89bio ( NASDAQ: ETNB ).
These are a couple of biotech stocks where the companies announced some positive test results for a liver disease treatment, which is a pretty cool thing. I think it was Akero ( NASDAQ: AKRO ) that had the results but then it boosted 89bio ( NASDAQ: ETNB ), which is a competitor.
We’ll start here with Akero ( NASDAQ: AKRO ). You will see results, obviously, were reported before the market opened. The stock gaps up and virtually immediately sells off. It’s the same thing with 89bio ( NASDAQ: ETNB ). So what’s the moral, what’s the lesson here?
The stock gapped up 31, almost 32 percent at the open. This one, Akero ( NASDAQ: AKRO ), the stock gapped up, opened here. The stock gapped up 28, 29 percent, it ran up a little bit. Actually, to get all the bag holders in, it came up another 3.5 or 4 percent before it tanked.
This is the thing, you’ve got this gap here but it’s so far back, you don’t want to be looking at this dogmatically like a lot of people do and say, Oh, it’s going to fill the gap. That’s a stupid way to look at this. It’s a biotech stock, it’s all over the place from $12.00 up to 60.00, and nobody cares.
It’s the same thing with ETNB ( NASDAQ: ETNB ), oh look, it filled the gap. Yeah, on the gap up and now on the way down. What I’m saying is, that these gaps back here aren’t important when there is all this other volatility going on. All a gap tells you is, there’s been no trading on this particular day from here to here, that’s it.
It doesn’t mean that if the stock starts breaking out above here it’s magically going to run all the way up. What’s really important is, that there was a lot of trading volume here. The stock had already been trending lower. Remember that for each share sold by somebody who wants to get out, somebody is buying that share who wants to get in.
The way this was working is, even before today this was going to have a lot of tough sledding trying to get up there. It was bumping up against the 200-day moving average, that type of thing. And then Akero ( NASDAQ: AKRO ), a similar type of deal. A different chart, a different company. A different stock but the same dynamics, and then boom, we get this.
So here’s the lesson boys and girls, the lesson is, particularly biotech, it’s like the whole group, if you just look at the ETFs, they are starting to pick up a little bit. You are seeing this start to work. But you don’t want to be trading the IBB ( NASDAQ: IBB ) because they’ve got a bunch of crap biotechs in there too so you have got to find your winners.
The point is, with this kind of volatility, anytime a stock gaps up so much, you have to sell into that because that is the nature of volatility. Volatility means going both ways wildly and unpredictably. If a stock is just going straight up all the time, like an NVIDIA ( NASDAQ: NVDA ) or something like that, that’s not volatility, that’s just alpha.
That’s just a stock beating the snot out of the S&P or the NASDAQ 100 ( INDEXNASDAQ: NDX ) that just keeps going in the same direction all the time. I’ll take 9 of those, thank you very much, but this is volatility. So this is the kind of thing, you’ve got to sell into that. You’ve got to be selling into this, particularly this one.
This thing, right off the bat, I think there’s one guy that bought right here, and hopefully, he’s not still holding the stock. When a stock starts selling off like this, you’ve got to get out. Just get out of the stock, and let somebody else take this.
And then what are you going to do right now? Absolutely nothing, these are not buyable stocks. Oh, but it’s up almost 6 percent today. Yeah, it’s up almost 6 percent, but think about it this way, it’s down almost 20 percent from the high. This level matters a heck of a lot more than this one.
This level does not matter at all. It has no bearing on anything remotely worthwhile. Volume was over 6 million shares today. The average trading volume is 1.4 million, which was a huge day. This is all the resistance, all the support you care about, and this is nothing but pain on this chart. The same thing here, nothing but pain,
Just stay away from these things. The fact that they’re in IBD, that’s great. But IBD doesn’t pound the table and say buy, buy, buy, they’re just giving you the information. You can go ahead and watch these stocks, but frankly, I think both of them are dead. They’re dead stocks, they trade like hell, and they’re just horrible stocks to trade. So don’t just go out there and buy them.
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